Debt Consolidation Home Equity Loan

Debt Consolidation Home Equity Loan

Give Yourself Some Breathing Room

Are the financial challenges of life affecting your bottom line? A Debt Consolidation home equity loan can clear the slate and give you a little breathing room. Having several small payments to various lenders every month is not just a hassle, it is costing you a bundle.

Between your car loan, credit card bills and other monthly obligations, your budget gets stretched to the limit. Wouldn't it be easier to eliminate all of those bills and have just one small payment?

The interest on a mortgage or home equity loan is much lower. So, you not only take a lot of pressure off your hard earned dollars, you also save money by paying less in interest and more in principle.

With a debt consolidation home equity loan, you can be completely debt free in no time.

A Debt Consolidation Home Equity Loan may help relieve some of your anxiety

A mortgage or home equity loan is a secured loan. The amount you can borrow depends on the difference between the value of your house and how much you owe on your home, which is the equity amount.

When refinancing your home, the maximum you are allowed to borrow is up to 85% of the value of your home. This is a little different than if you were going to purchase, where you can borrow up to 95% of the purchase price.

Obtaining a debt consolidation home equity loan is generally quite simple. The process is much the same as when you first purchased your home. There is an application, you need to provide some documents to confirm your current income (employment letter & pay stubs) and some details about your current home (mortgage statement, municipal tax bill). The lender will then have an appraisal completed. You will have to sign some documents that register a mortgage against the title of your home.

Lenders will offer much better interest rates on debt consolidation home equity loans because your home is excellent collateral.

Why Consolidate?

A debt consolidation home equity loan may help you save money and get out of debt.

High-interest debts are designed to keep you in debt. With credit cards, your payments are mostly going towards interest, and very little is paid off on the actual amount you borrow. Personal loans carry a lower interest rate than credit cards, but the rate is still much higher than with a home equity loan.

All of these high-interest debts are creating a barrier to your financial goals. How will you ever get ahead if you are struggling just to keep your head above water?

Combining all of your debts into one low-interest loan means more of your money will go towards the principle. Without all of those other monthly payments, you will be able to make larger payments on your mortgage or home equity loan, which means you will have all of your debts paid off within a few years.

Credit card debt can be difficult to pay off. If you are paying only the minimum monthly payment, you are paying mostly interest and very little principle; it could take 2 or 3 times longer to pay off than if you had a mortgage!

Many debt consolidation home equity loans can be added right to your mortgage. That way you can easily budget with a structured payment plan and a definite pay-off date. What a relief it is to know the exact date you will finally be completely debt free.

Here is a strategy we have used that has helped our clients when they consolidate their debt into a mortgage:

  • We calculate the total payments from all credit cards, loans & lines of credit that are being consolidated.
  • We review all of your other expenses to identify how much of the above payment is really affordable. (Usually, this number is approximately 75% of the total payment.)
  • The more affordable number then becomes the new debt consolidated home equity loan payment.
  • Because your new payment is lower, you will feel better and less stressed, and the debt will be paid off much faster than if you had chosen to juggle all those payments separately.

Debt consolidation home equity loan or line of credit, which is right for you?

Homeowners looking to consolidate their high-interest debts have options. You can either use your home equity to secure a lump sum loan or a revolving line of credit. Both options give you the benefits of lower interest and a higher credit limit.

By consolidating your debts into a home equity loan, you have the convenience of one manageable payment rather than several monthly bills from different creditors. This makes money management easier. You will finally be able to plan for the future, set some money aside for a rainy day and take a well-deserved vacation.

A home equity line of credit offers additional benefits. Since you are not borrowing the entire amount available, you only pay interest on the amount you actually use.

You do not have any set payments. You can pay back as much or as little as you can afford. Plus, once the money is paid back the line of credit is still there for you use again if needed.

A home equity line of credit isn’t always the best solution to consolidate debt. It is often better to choose a fixed payment, fixed interest rate home equity loan to consolidate debt.

Once you have built up some repayment discipline, then a home equity line of credit (HELOC) could be a fantastic choice. Depending on how you set up your home equity line of credit, you may well be able to use it for the entire life of your mortgage.

Benefits of a debt consolidation home equity loan:
  • Much lower interest rates than other loans or credit cards.
  • Flexible repayment options.
  • Can be combined with your existing mortgage payment. One payment is easier to manage than several monthly payments.
  • Get the money in your hands in a short time. The entire transaction can take as little as 1 to 2 weeks.
  • The credit limit is potentially much higher than what you would get with a personal loan or credit card. You can borrow up to 85 percent of the value of your home.
  • Paying off your debts improves your credit score.
  • The total amount you pay every month will be much less.
  • You spread out the loan over a longer time frame (longer amortization).
  • Maybe the only way to secure the funds you need if you have a poor credit score.
Although there are many advantages and in many cases, a debt consolidation loan is the only way out of a downward financial spiral, there are some disadvantages:
  • You risk losing your home if you can't make the payments.
  • Once you become debt free, you may be tempted to run up your credit cards again.
  • You may be tempted to spend the loan money instead of using to pay off debts.
  • You lose some of the equity in your home.
  • There are fees to set up a debt consolidation home equity loan. You will have to pay legal fees (approx. $1000), appraisal fees (approx. $300), title insurance fees (approx. $300) and there may be other fees. If you can't afford these fees, you may be able to include them in the total amount borrowed.

Compared to the advantages, the disadvantages of a debt consolidation home equity loan are quite small. If you want to have more control over your finances and become debt free, a debt consolidation home equity loan is the perfect solution.

Does this sound like the loan to help you? We can help!

For a free, no-obligation conversation about your home equity loan needs, contact us. Verico iMortgage Solutions is here to make a positive change in your financial outlook.

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